How Cheap Will Petrol Prices Go?
Petrol and Diesel Prices Have Declined Significantly Over The Past Few Months. But Why Have They Gone So Cheap Now And How Much Can You Expect To Save?
January 26, 2015
Over the last few months the cost of petrol and diesel at the pump has fallen to a five year low. Tumbling oil prices and strong competition between supermarkets has driven down the cost of filling up with many experts now believing that petrol could be set to fall to below £1 per litre for the first time in years.
But why have petrol prices fallen? Are they likely to stay low for the long term? And how much are you currently saving at the pump? Keep reading for the answers to these questions and more.
There are many reasons for this fall but in simple terms the oil price has come down because of a lack of demand for the commodity. Oil prices have been high for the last ten years — around $100 per barrel since 2010 — because of soaring oil consumption in developing economies and conflicts in key oil nations such as Iraq.
However, by 2014, oil supply was much higher than demand. Oil companies in America were producing much more oil – for example in Alberta’s oil sands and North Dakota’s shale formations – and weakening economies were using less oil.
By late 2014, lots of unused oil was being stockpiled away for later and so, in the autumn, prices started falling sharply.
According to Auto Express the average petrol price now stands at 106.8p per litre with diesel currently 114p per litre. Experts believe that prices may fall further and then remain at this level for the foreseeable future.
Simon Williams from the RAC said: “With a barrel of oil now costing around $47, we are surely only weeks away from the milestone price of £1 a litre being a common sight at petrol stations up and down the country.
“And, as the current oversupply of oil is believed to be part of a long-term Opec strategy to keep oil prices low, there is every reason to think that motorists may well enjoy low prices for some time to come.”
However, there is a limit to how far petrol and diesel prices can fall. David Hunter from Schneider Electric energy management specialists said: “If oil prices fall to $40 a barrel, then a litre could fall to £1, based on the exchange rate staying stable, though there would be a delay on that feeding through to price at the pump. Less than that would be unsustainable because of tax take, extraction and manufacture costs.”
Currently, 70p of every £1 spent on petrol goes to the Government in the form of taxation. This means that even if the price of oil were to fall further the cost of fuel wouldn’t fall accordingly – at least not without a cut in fuel duty.
The RAC Foundation recently estimated that UK drivers are £330 million better off each month compared to last summer because of the fall in the price of petrol.
Assuming the current average petrol price of 106.8p per litre, a driver who fills their 50 litre petrol tank up every week saves approximately £8 compared with the equivalent cost in November 2014. The same driver would save around £17 compared to the cost of filling their car up in April 2012 when petrol was around 142p a litre.
The chart below shows your savings.